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International expansion – Do you have what it takes

This article is the second in the series and it deals with if 1) your organisation and 2) your internal resources are capable of pursuing an international expansion. Where the first article, which you can read here, focused on the market facing aspects of getting the product right, the pricing right and finding the right partner, we will now be looking more internally at your own company.

As we concluded in the first article, you really shouldn’t leave international expansion to be a random thing. It takes commitment and time. For those reasons, we need to explore the organisational requirements and the internal resources and commitment levels required to succeed.

‘’Growth and comfort do not coexist.’’

Ginni Rometti

Change is needed for international expansion

When you decide to expand internationally, several things will happen within your company that will be very different to the ways of the past. In figure 1 below, some of the main differences are listed.

Figure 1

One market only

Multiple markets

Organisation knows and understand the market

More markets are added that are unfamiliar

Organisation understands customers and what is needed

The nature of and the needs of the customer may be different, e.g. distributor rather than retailer

The volume of the transactions is known

The volume of transactions will increase

The product line is familiar

New products may be introduced, adding complexity in many ways

The transactions are familiar

Transactions become more complex, possibly with international shipments, new invoicing requirements etc.

Payment methods are familiar

New and more complex payment methods need to be understood, e.g. Letter of Credit and the associated paperwork for releasing of goods

Timelines for when certain tasks need to be completed for timely market launch are known

New markets may go to market at various times, there may be a time delay because of customs checks, time delays because of labelling requirements, different or reverse seasonality etc.

Everything happens in limited time zones

Possibility of adding time zones that are vastly different from the home market

Business is conducted in home market language(s)

Language skills, most likely English as a minimum, are needed to do business with foreigners, by many team members

One organisation deal with everything, i.e. HQ and operating organisation is one and the same

Over time as the international business grows, it’s highly recommended to establish an organisation that reflects 1) HQ, 2) Home market and 3) International business

How business is conducted is second nature and there’s a substantial familiarity with customers

New customs and traditions in the new markets need to be emphasized and understood. Relationships need to be built with partners, the team of the partner and local retailers

The last two points mentioned in figure 1 require additional explanation.

The last point about forming relationships with partners and retailers overseas cannot be underestimated. There’s a huge need for the new partner to have a full emersion in the brand. Similarly, there’s a need for team members of the two organisations to meet and establish ways of working. And as always, when you have a face to the name, everything is just easier. So, some level of travel and time spent in market is necessary, especially in the beginning. Or put differently, if you’re not willing to travel to the new market at least once or twice a year, it may not be important enough for you.

Another point that deserves more detail is the one about differentiated organisations. An obvious point is that the entry mode into a new market will determine if a local organisation is needed in the new market (subsidiary/JV and similar type set ups) or if in-market capabilities and staffing are handled by third parties (exporters/distributors/agents).

Additionally, there’s the impact on the home market organisation that needs to be considered. In the beginning when the international business is only a smaller share of the bigger pie, it makes sense that the home market organisation covers both the home market and support of international markets. However, there comes a time when it is advantageous to establish an international organisation to support the fulfilment of the full potential of international markets. Especially, if the home market is of substantial size, because you run the risk that the home market will continue to receive all the attention. Consequently, business opportunities in international markets are neglected. The recommended approach to this is to establish a head quarter function that supports all markets. Especially around market facing functions, rather than create an international division that’s supported by the home market organisation. If this does not happen, inevitably, the home market organisation will continue to focus on the big market that is right in front of them.

‘’Unless commitment is made, there are only promises and hopes… but no plans.’’

Peter Drucker

Commit to the strategy

As you can tell, several changes will occur when you embark on an international expansion. To deal with those changes successfully you need to be committed. What this means is that from the very top, international expansion needs to be on the agenda. And to be credible the commitment needs to be reflected in actions. Some examples:

The communication part is huge – senior leaders need to visibly support the initiative

Addition of the right number of head count needs to be supported

Addition of the right level of skills will be needed

Allocation of time from existing team members needs to be a priority

Bonus agreements should be redrafted to reflect the new focus areas

Importantly, resources also need to be allocated according to the level of priority. As resources are typically limited, this will have implications on what entry mode you can pursue and what activities you can initiate in general. At times, this may lead to unpopular decisions that may allocate funds away from the home market.

If resources are plenty, more resource intensive entry modes like subsidiary or joint venture, can be available. These modes usually require investments into infrastructure, organisation, marketing, and cash for ongoing operations.

Less resource intensive set ups like export, distributor or agent presence in market, will however still require, time, travel costs possible product development costs etc. Figure 2 below illustrates the resource needs and the control gained over the international expansion process in the various entry modes.

Figure 2

Often the less resource intensive approaches are chosen when businesses first commence their international expansion. As they grow more comfortable with the process and/or have more resources available the more resource heavy set ups are preferred. The Hybrid option is one that has been utilised more and more in recent years and it comes in different practical applications. It could be an Agent set up combined with an in-house Key Account Manager, or strong Online presence combined with an Agent set up. We’ll explore the Hybrid in more detail in a subsequent article. The bottom line is that international expansion takes time, resources and commitment if you want to do it right, regardless of your desired entry mode.

In the next articles in the series, we’ll be exploring the various entry modes, so watch this space.